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Q1 Recap and Outlook

April 3, 2023



The 1st quarter rollercoaster came to an end with stocks and bonds posting solid gains.  The S&P 500 was up 7.50% and the U.S. Aggregate Bond Index (AGG) was up 2.96%.  This, despite a relatively hot inflation report in the month of February.  The Federal Reserve continued war on inflation via higher interest rates and the failure of a couple regional and global banks which sparked fears it would spread to other financial institutions, `a la 2008.


So what worked?  Large Cap Growth stocks were the beneficiary of the uncertainty in the markets. Led by Apple, Microsoft, NVidia, Facebook, etc., the Large Growth Index was up over 14% for the quarter.  


What didn't work?  Mainly, diversification. The equal weight S&P 500 index was up only 2.54% vs the market cap weighted index (S&P 500) being up 7.50%. Large Value stocks struggled with banks, energy and healthcare, which were down 5.56%, 4.67% and 4.31%, respectively.  Small company stocks also underperformed being up only 2.40% for the quarter.


Outlook.  The FED is likely at the end of their rate hiking cycle, which the markets should view  as a positive.  Inflation numbers should also continue to rollover in the coming months and all eyes will be on corporate earnings which will start being announced later this month, and more importantly their full year guidance.  The "R' word is still being talked about among many economists with the majority seeing a recession likely later this year.  Again, this will be the most anticipated recession of all time and the question will be if traders will look past it and towards the inevitable recovery (many stocks have priced in a recession already) or do we retest the October 2022 market lows?  Market sentiment among individual and institutional investors is still very negative which is a contrarian indicator.  Time will tell, but you probably already know where I stand...when the majority of economists and market prognosticators are certain of an outcome, I take the other side of that bet as the majority is usually wrong.


Let me know if you have any questions.